EMERGING MARKETS – FX down as dollar rages; Russian stocks slide as Nord Stream 1 shutdown drags on

Emerging market currencies fell on Monday as the dollar hit two-decade highs on renewed fears of recession after Russia announced it had halted gas supplies to Europe through a key pipeline, while regional stocks fell to nearly three-week lows.

Russia’s state-controlled Gazprom said on Friday the Nord Stream 1 gas pipeline to Germany would remain closed indefinitely, shocking customers who expected it to reopen on Saturday after three days of maintenance work. The ruble stabilized near the 61 mark against the dollar, as Gazprom fell 1% and Russian stocks broke a six-day winning streak to slide 0.1%.

Central and Eastern European currencies also weakened between 0.1% and 0.2% against the euro, which hit a 20-year low. “The energy crisis may have been brewing for months, but much like the financial crisis of 2008, tensions in the system, such as overreliance on Russian gas, suddenly burst into deep fissures,” said Susannah Streeter. , chief investment officer and market analyst at Hargreaves Lansdown.

Czech real wages for the second quarter were down nearly 10% from a year ago, while data also showed Hungarian retail sales growth slowed in July, giving fresh hints of an economic downturn. The Polish zloty outperformed its peers to gain 0.1% ahead of a central bank decision expected on Wednesday.

The South African rand, Mexican peso and Chinese yuan lost between 0.1% and 0.6%. Elsewhere, Turkey’s annual inflation hit a new 24-year high of 80.21% in August, slightly below expectations according to official data, after the central bank unexpectedly cut interest rates. interest and fueled a cost of living crisis.

“Even so, the central bank is likely to remain beholden to President Erdogan’s wishes for softer policy,” said Liam Peach, senior economist at Capital Economics. “It looks like further interest rate cuts are more likely than not later this year, and given Turkey’s external vulnerabilities, this just increases the risk of sharp falls in the lira.”

The lira has lost 27% this year after losing 44% last year. Meanwhile, the Indonesian government has said it expects inflation to remain above the central bank’s target, predicting an increase of between 6.6% and 6.8% this year after raising fuel prices, but said the measure would have minimal impact on economic growth.

The rupiah was little changed, while Jakarta shares rose 0.8%. For 2022 Emerging Markets FX performance chart see http://tmsnrt.rs/2egbfVh For 2022 MSCI Emerging Market Index performance chart see https://tmsnrt.rs/2egbfVh

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